DIFFERENT TYPES OF BUSINESS LOANS
Business needs are different and this means when you are looking to raise debt, there can be a range of options available to you. We list a few types of loans that you can consider when looking for money. The list is not exhaustive, but should give you a fair idea about the choices.
Working Capital
Working capital loan is one taken to overcome short-term shortage of cash. This is generally used to when cash in the business is not enough to take care of the day-to-day operations of the company. Working capital loan is a great way to overcome the seasonal shortfall of cash, irregular cash flow or to cater to a sudden spurt in business.
Term loan
These are standard loans where you apply for a apply for credit for a specific purpose and get a lump sum amount. These are long-term in nature and often utilized for capital expenditure. The tenure is fixed, the amount of loan available is generally higher and depending on the credit profile of the business, the rate of interest can be lower. Lenders prefer term loans to be backed by collateral, but in some cases it can be unsecured in nature.
Invoice financing
Invoice discounting and financing is a powerful tool to raise capital. This can provide a great way for small businesses to find working capital. There is often a time lag between when a business raises an invoice and when it finally gets paid. In such a situation you can approach a bank or a financial institution to provide you a loan against the invoice. About 80% of the invoice amount is given as a loan and the remaining 15% becomes due when the invoice is paid in full by the customer.
Pradhan Mantri Mudra Yojana (PMMY)
Pradhan Mantri MUDRA Yojana (PMMY) is a scheme specifically for the MSME industry in the non-farm sector. These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs. The loans under this scheme is available under three products – Shishu, Kishore and Tarun to signify the stage of growth / development and funding needs of the enterprise.
Stand Up India
This scheme is targeted at entrepreneurs from the Scheduled Caste (SC) or Scheduled Tribe (ST) and Woman borrower to set up a venture (not meant for enterprises which has already started operations). In case of non-individual enterprises at least 51% of the shareholding and controlling stake should be held by either an SC/ST or Woman entrepreneur.
